Blog

It Won't Be So Bad: A Q&A With the Author of $20 Per Gallon

It’s notoriously hard to predict gas prices. Who would have thought in 2006 that we’d be paying $4 a gallon in 2008? Or, as prices peaked last year, that we’d be filling up for $2.50 a gallon this summer?

That said, civil engineer and Forbes reporter Chris Steiner argues that prices will rise precipitously over the next few decades. (It would probably make as much sense to argue that electric cars will take over and gas prices will fall, but that’s another argument for another day.) In his book $20 Per Gallon Steiner talks about how super-expensive gas would change everything — from the cars we drive to the price of sushi (if you can still buy it at all); whether Wal-Mart stays in business, and how often the average family can afford Disney World (if it still exists).

On balance, Steiner argues that dramatically high gas prices would actually be good for society. He predicts what would happen if gas prices rise drastically, and explains why he thinks that could actually be good for society. (Related: see this quorum on suburbs.) We asked him to give us his predictions for what our lives might look like with gas at $8 and $18 per gallon, respectively.

$8 per gallon (predicted year: 2019):

Q

If I go out to eat, what sorts of restaurants will I most likely be able to choose from? Where will most of the food on the menu come from?

A

Our restaurant world won’t be terribly different from what we’re used to now. We’ll always have Chinese food — or at least the Americanized version of it (batter it, fry it, smother it in sweet and tangy sauce).

The tricky part of the question concerns foods like sushi. When gas is $8 per gallon, sushi will still be hanging around. Things get interesting, however, at $18 per gallon.

Q

If I have kids, how will they get to school?

A

How you live largely depends on where you live. For people who live in walkable communities, life at $8-per-gallon gas will be far easier. Their kids will just hoof it.

What most kids won’t be doing, though, is riding a school bus every morning. Just last year, when gas was $4, school districts across the country made huge cuts to busing programs. Maryland’s Montgomery County, outside Washington, buses 96,000 children to school every day, burning 3.3 million gallons of diesel fuel a year. When the price of gas goes up a penny, the county is out another $33,000. So the price of that program would increase nearly $20 million in a world of $8 gas. School board officials last year authorized Montgomery’s superintendent to increase the maximum walking distances for high school students, which were set at two miles. Generally, students who live within the limits are expected to find their own way to school.

In a future of $8 gas, those limits will go up across the country. In fact, it’s possible that places such as Montgomery County would cut busing almost completely. Capistrano School District in California’s Orange County dumped 44 of its 62 bus routes when gasoline spiked, saving the district $3.5 million.

America’s schools face tough choices in the future: do they cut sorely needed teachers and programs, or do they cut busing — something whose price is capricious and likely to keep increasing?

Q

How much will I have to save up for a round-trip flight from New York to France? What airline would I most likely fly on? How about from New York to Disney World?

A

At $8, a trip from JFK to Paris will cost around $2,000. When gas prices reached $4 last year, jet fuel comprised 40 percent of most big airlines’ operating expenses. When gas goes to $8, they’ll set aside 60 percent of their operating costs for aviation kerosene, an untenable model. These companies built their networks paying 10 percent of costs toward fuel. We will lose at least half of our domestic airline capacity at $8, as the legacy carriers (United, America, Delta/Northwest, US Air) surrender America’s skies to JetBlue and Southwest. Continental, the best-run of the legacies, may hold on and become the lone carrier of international consequence. So, as a result, you’ll either fly Continental or Air France for your trip.

At $8, traveling from New York to Disney World will be on a JetBlue flight. The cost: $800. The only problem is that, when you arrive, you may find the gates to Disney World locked up. Disney World is a mammoth operation — more than 50,000 employees across 47 square miles — utterly dependent on people making the pilgrimage to it from across the country and world. When just getting the family to Orlando takes $4,000, Disney World’s visitor count will crash. Day-tripping Orlando folk can’t keep the place open. The good news is that Disney, its movies, and its characters will persevere, so the children of the future will still understand who Cinderella and Mickey are.

Q

What’s the likelihood I’ll have a car in the driveway?

A

You’ll drive a hybrid at $8. Consider this: driving will cost about three times as much as it does now at $8. That’s a giant difference. A family who now drives two cars 15,000 miles per year currently pays $325 a month for gasoline (assuming $2.60 and 20 m.p.g.). In a world of $8 gas, their monthly gas bill would be $1,000. That’s like a second mortgage. Costs like that will drive hybrids to be wildly popular — and so, too, will be the practice of cutting down on miles driven. The easiest way to do that, of course, is to get rid of your car, assuming you live in a place that will allow it (a lot of places don’t, obviously).

Q

What industry will everyone want a job in?

A

Remember when everybody fell all over themselves trying to land a gig at an internet company during the late 1990’s? Those jobs were instant tickets to riches, or so we thought. When gasoline reaches $8 per gallon, energy-related startups will form the new craze. That’s where the hot jobs will be. IPO’s, wild sums of venture money, 23-year-old C.E.O.s — all of it will be resurrected from that movie called 1999. Or perhaps the market will recall the mistakes we made in the past and dial back its reaction … or perhaps not.

Either way, the energy revolutions that begin at $8 will change our lives indelibly. And just as many of the companies to emerge from the dot.com craze turned out to be legitimate, brilliant, and successful (Google, eBay, Yahoo!, etc.), so too will some of the companies that find their genesis in $8 gasoline.

$18 per gallon (predicted year range: 2029-2039):

Q

What will have happened to my sushi options now?

A

One of two things will have happened at this point: either we’ll have fished out most of the wild tuna and other fish stocks we depend on for sushi or, if those stocks still exist, it won’t be affordable to chase them around the world’s oceans on a large scale (this exercise requires convoys of boats gulping copious amounts of fuel; and transporting the fish in a fresh manner means air freight, something whose price will have increased four- to five-fold by then).

The ocean’s fish stocks have shrunk more than 50 percent during the last 40 years while global demand for seafood has doubled during the last 25 years. Basically, what we have is a race pitting the price of gas against dwindling fish populations. If gas stays cheap long enough — under $10 per gallon or so — we may drive fish stocks to utter collapse. But if the price of gas increases quickly enough, the world’s fish will finally, for once, catch a break.

Regardless of who wins (loses) the race, the $25 plate of sashimi cuts will be lost to history when gas costs $18 per gallon, which is perhaps two to three decades away, which really isn’t that far off. Some contemporary idea of sushi, I think, will always be around, but it will morph to forms more like the California roll than maguro sashimi. Local fish from farms may take the place of those buttery cuts of ocean-going salmon and yellowtail. Catfish sushi? I haven’t tried it. Not yet.

Q

How will kids get to school now?

A

By the time gas has reached $18, most people will live in places where density dictates that schools be grouped closer together, putting them within an easy walk or a brief bike ride.

Q

How much for that round-trip flight from New York to France and on what airline?

A

You’ll either fly Continental or Air France for your trip. At $18, this flight will be $4,000 to $5,000. The dearth of capacity will allow the existing airlines to charge large premiums and, unlike now, make a steady profit.

Q

What car’s in my driveway now?

A

At $18, you won’t have a driveway. There will be a whole generation of Americans growing up without cars at this point. They’ll live close to schools, close to new train lines, and close to places like restaurants and grocery stores. Electric cars will make an impact, but they won’t come in with the pricing power nor the volume to prevent massive changes in where we live and how we live.

Q

What’ll be the new hot job field?

A

At $18 per gallon, a new way of efficient living will have settled in across much of the developed world. What we’ll still need, however, is what we always need, in fact: civil engineers. As our world transforms from one built around the car to one again built around the person and forms of mass transit, civil engineers will reshape society and the way we move and the way we live.

Additional questions:

Q

Life will change drastically for Americans if the price of gas rises as you predict. What are some things you suggest people enjoy now before they’re gone?

A

Eat sushi. Drive the trans-Canadian highway (in summer). Go to Australia. Go see Tokyo and take notes — life will be more like that and less like, say, Omaha, in the future.

Q

Will rising gas prices affect the impact of climate change?

A

It’s likely we’ll burn most of the easy-to-get oil no matter what. Expensive or cheap, we’ll burn it. There’s probably no saving the atmosphere from the carbon locked in the oil of places such as Saudi Arabia and Russia; it will get burned. What high gas prices can lead us toward, however, is a more efficient world where coal (climate enemy No. 1) plays a smaller role in our energy needs. For this to be possible, we’ll need more cogeneration (combined heat and electricity projects), solar, wind, and nuclear.

Q

You predict that gas will hit $6 by 2010. This will probably be a life/lifestyle changing event for a lot of people, so why doesn’t it look like anyone is preparing now? Is it apathy, denial, or something else?

A

If the current economic malaise the world finds itself in continues much longer, we probably won’t see gas prices that high so soon. But the important thing to realize is that higher gas prices will come and it won’t be a pure function of inflation, it will be one of supply and demand.

People typically don’t change, especially on this kind of scale, until they’re forced to change. Cheap gas has been a function of abundance. It’s not an entitlement. I think people sometimes forget that. What I’ve tried to do is forecast how those changes will unfold as we’re forced to make them at different price points of gasoline.

That said, it’s hard to plan for something so transformative when we have so much in our lives to worry about already. Just like some people would rather ignore their credit card bill than pay it, some people would rather ignore this problem until it’s taken them by the collar and thrown them against the wall. Six-dollar gas will be that moment for a lot of people. They may not like it — and why would they? — but they’ll accept the fact that higher gas prices are real and they’ll adapt. And most them, I think, will be surprised at how well they adapt.

AaronS

Consider that many things will NOT be purchased so that gasoline can be purchased...which will put people out of work.

Consider that this will be ripe for exploitation by the right leaders, refusing to abide under federal guidelines for this or that in order to help the people of their state or district (e.g., foregoing pollution standards in order to cheapen gasoline).

Consider, very simply, a revolution.

The key is to NOW--before it ever gets to this place--to begin to replace our gas consumption with clean, renewable, AMERICAN energy, adding incentives for gas suppliers to also offer this new energy, creating massive prizes for inventors to create and build the car of the future, and beginning to hike taxes on vehicles that do consume gasoline in large quantities (eventually moving to tax any new vehicles that consume gasoline).

We have massive amounts of natural gas. Too bad we can't figure out how to make cars run on it--NOT!

It is a capital investment by our nation, along with some Draconian measures, that must save us from dependence on foreign oil and being at the mercy, ultimately, of those who control our "life blood."

We could do this in ONE YEAR...but we won't. We'll argue to let the market take care of it...that there's plenty of oil for many more years...and our children will suffer.

Read more...

Terry

July 30, 2009 @ 3:07pm

If oil prices are going up solely (or mostly) due to supply and demand, why would coal be phased out? I could see the argument of coal use diminishing if we were focusing on CO2 pricing. But as oil prices increase, wouldn't we rely more on coal?

David

July 30, 2009 @ 3:14pm

Are these gas price increases in real or nominal terms? It is hard to interpret without knowing whether the author accounts for inflation.

Kitt Hirasaki

July 30, 2009 @ 3:16pm

I don't find Mr. Steiner's predictions very believable. As individuals, we innately are unable to see how we, as a society, will evolve to counter new problems. Right now, it seems like the looming problem of energy prices is unsurmountable.

But consider that when gasoline costs $18 a gallon, no one will be using gasoline -- they will be using a cheaper alternative, perhaps one that does not even yet exist. In fact, gasoline may never reach $18 a gallon because other cheaper alternatives will prevent gasoline's ever becoming so scarce.

It sells books to predict gloom and doom. I wonder if Mr. Steiner would be willing to make a public wager about his predictions; not with me, I'm nobody -- but I'm sure there are high-profile economists out there who'd be willing to take him up on it.

Novaseeker

July 30, 2009 @ 3:18pm

Stronger reliance on nuclear power can save fuel oils, giving us more time to come up with a workable alternative.

YB

July 30, 2009 @ 3:31pm

Don't we have already $8/gallon here in the UK and most of Europe?
No sign of breakdown of society in sight ... ok, not more than the usual.

miket

July 30, 2009 @ 3:34pm

kudos to Freakonomics for inviting this author for a Q & A regarding a seemingly taboo subject BUT he completely glossed over the potential catastrophies of Peak Oil, perhaps his book tells more than what happens to our precious sushi supply... read James Kunstler's "The Long Emergency" for a more rigorous study of the end of cheap energy.

Conor - ireland

July 30, 2009 @ 3:42pm

Gas prices of $18 in 2029 will be fine... wages will be much higher, $4,000 for a ticket to europe sounds a lot now, but it won't seem so much in 20 years time.

Also, the predicted changes in lifestyle wil nto be as dramatic, I am from Ireland where Gas prices have been >$8 per gallon (after conversion) for a long long time, life goes on, wages go up, people pay the increase to a point.

However, what I do agree with is that higher gas prices will be the end of the great road trip. We just don't do that in Europe, that's about the only difference I see between here and there at $8 a gallon.

Max Schneider

July 30, 2009 @ 3:44pm

"Six dollar gas will be that moment for a lot of people".

Regular gas is 1.30 Euro per liter at the moment in Germany*. Converted to dollars per gallon this works out at 6.94 $ per gallon today, which is well above six dollars a gallon and really close to the dreaded 8 dollars per gallon predicted for ten years in the future in this article.

When gas was 4 $ a gallon in the US it was 1.50 Euro per lite in Germany. At the exchange rate valid back then (1.0 € = 1.50$) a gallon of gas worked out to be 8.43$ per gallon in Europe.

I wish gas was ever only 4 $ a gallon, what a bargain.

Actually, this doesn't change much in the driving habits. People still drive everywhere. Also you shouldn't forget inflation, so 18 $ in twenty to thirty years time is a lot less worth than it is today.

* most of the price of gas in Europe is tax. Gas costs even more in Turkey than in Germany (because of the tax) so may be they already cracked 10 $ a gallonin the past.

Read more...

Max Schneider

July 30, 2009 @ 3:49pm

May be I should add that 30 - 40 mpg cars are the norm over here. If your car uses less gas the higher cost of gas (as well as reduced distances due to less sprawl) will even out and your average commute will cost about the same on either continent due to those factors.

TonyW

July 30, 2009 @ 3:54pm

Here's a prediction: the children begging in the streets will congregate at the McDonalds closest to the nuclear power plant.

I' suspect the author's vision of whats "better" about high oil prices doesn't include Nuclear power, McDonalds or begging children. Well guess what....

Mike B

July 30, 2009 @ 3:58pm

While this is a great thought experiment the predictions are wholly unrealistic. Case in point is Nazi Germany. When Nazi Germany ran out of oil did it end the war? Of course not, they began to make synthetic oil from coal, which costs about $100 a barrel in today's prices. Of course this will completely blow up the global warming problem, but seriously, if it comes down to a choice between giving up all the modern advancements due to (inflation adjusted) $20 gas or global warming, the World is going to pick global warming. Affordable transportation is ESSENTIAL to modern society. While wasteful suburbs may vanish and rail travel will replace air travel in many instances, everyone will always have a personal vehicle available to them to travel around their extended area.

Even in the worst case scenario the technology already exists for practical, affordable electric cars. This isn't even considering current advances in bio fuels which is the real wave of the future. Brazil already runs on E100 fuel thanks to its large investment in sugar plantations. Once we get Cellulosetic production figured out the South can turn its kudzu resources into usable fuel.

This gloom and doom "the world is running out of oil" BS has been a constant mantra since the 70's. The reason we use rock oil is because it is simply cheaper than the many MANY other alternatives. The Brits ALREADY have $8-10 a gallon gas and their lifestyle hasn't imploded. They just cut waste and carry on. As long as the sun shines and we have fissionable and fusionable elements there will not be an energy shortage in the true sense of the word.

Read more...

DNS

July 30, 2009 @ 4:01pm

The presumption that electric cars will never be viable doesn't make much sense. There are already companies, i.e. Tesla, producing all-electric cars within 2-3 times the cost of your average sedan. And that's despite $2.50 gasoline (a ridiculously low price) providing little incentive to focus on electrics.

As the price of gas passes $6 per gallon, there is guaranteed to be a dramatic increase in investment into electrics and battery technology. Just the increased demand alone will result in economies of scale that will bring that price down to what you're paying now for a Civic.

The problem of trucking and long-distance transportation is thornier, but it makes no economic sense for people to simply give up, rather than developing an equivalent solution with lower costs.

Keep in mind as well that, as all-electric cars gain market-share, there will be a significant reduction in demand for gasoline, which will offset the effect of lower supply. I would expect gasoline to stabilize in the long term, at significantly less than $20/gallon.

Read more...

Jonathan

July 30, 2009 @ 4:02pm

I wonder if a lack of oil, and therefor transportation would lead to more 'virtual transportation'. (I suspect SOMETHING will replace oil for transportation in reality)

More telecommuting, internet based education, centers with big VR setups that let you meet people from other cities without traveling.

Would make a great sci-fi book anyway!

MikeM

July 30, 2009 @ 4:05pm

So basically, in Steiner's future, everyone will just sit around and do nothing except to save up to buy gas?

OMW

July 30, 2009 @ 4:16pm

Americans are so obsessed with gas prices.

Quill

July 30, 2009 @ 4:28pm

If you want to protect the environment (or farmland or open space) or you hate sprawl, then electric cars are a nightmare.

Many Americans are quite happy to spend hours commuting if gas is cheap. If electric cars do ever pan out to be pennies a mile to drive with a 300-mile range and quick charges, suburban sprawl will increase dramatically.

MZS

July 30, 2009 @ 5:34pm

Current gas price in Finland is $7.13 / us gallon. Everybody still drives everywhere, and they probably will at double the price.

Patrick Chaffin

July 30, 2009 @ 5:47pm

Interesting... The first thing that came to my mind was George Orwell's "Nineteen Eighty-Four".

christopher Markl

July 30, 2009 @ 6:02pm

this sounds very Malthusian, like when oil reaches 18 dollars a gallon planes will still run on gasoline, and tickets will just be exponentially more expensive.

I'd be willing to bet there has been a monotonic trend of greater access to airline travel both domestically and internationally and it seems like to much of a doomsday story to believe that technology will not trump increase of input prices.